In our last blog we discussed what you need to bring to your appointment in order to get pre-approved.
Now that you are pre-approved, what happens next?
Now you want to provide your Real Estate Agent, may I suggest Michelle Parsons or Shelly Billiot, with your pre-approval letter and your “work sheet” from the lender. You will need the pre-approval letter once we are ready to make an offer on a home, it is part of the offer process. The “worksheet” will help us guide you in terms of what you can expect regarding “out of pocket costs” to be and how much you may want to ask the seller to pay of those costs, if any.
Your pre-approval letter will provide your loan type. Your loan type, as per our earlier blog, can determine whether or not a home is eligible for financing. It also indicates the lender’s recommended price range for your financial profile. Or, a price range based upon a mortgage payment that is comfortable for you. Now we are ready to start looking at homes that meet your needs.
Once we find the home you want, we make an offer. We will provide you with the disclosures from the Sellers to review as we prepare to make an offer on the home. All offers will be made in writing, it’s the law in Louisiana. The offer will tell the Sellers how much you would like to pay to purchase their home, the amount of closing costs and/or pre-paid items you would like for them to pay on your behalf (if any), the type of loan you will be using to purchase the home, how much down payment you will be paying, your interest rate, how many days you are asking for an inspection period, how much you are offering for a good faith deposit, the amount you are asking the seller to pay towards a home warranty (if any), the date you would like to close the sale and a few other additional terms that we will discuss below. So let’s break down the offer in more detail:
- The amount you are offering the seller is self-explanatory. Of course it must be at or below your pre-approved amount. We will provide your pre-approval letter to the Seller/Seller’s agent to verify that you are indeed, pre-approved for the amount of the offer.
- Closing Costs and pre/paid items. These are Buyer’s fees. However, they could be negotiated with the Seller. Depending on the type of loan you are using and the lender’s guidelines, the amount you can ask the Seller to pay may vary. Buyer’s need to keep in mind that when you ask a Seller to pay closing costs and pre-paid items, this will come out of the Seller’s Net Proceeds and not all Seller’s will be willing or in the position to accommodate this request.
- Letting the Seller know the type of loan you are approved for is important. Think of it as a mini “resume” to the Seller. This information will let the Seller know just how strong a buyer you are and this may be important if there are multiple offers on the home you are interested in purchasing. For example, should a Seller receive an offer from a Buyer that is pre-approved for a Conventional Loan and at the same time an offer from a Buyer that is pre-approved for a Rural Development Loan, the Seller’s agent will offer them guidance regarding the differences in the loan process for each of these loans. The Conventional loan will have fewer restrictions than the Rural Development loan during the appraisal process and may be more attractive an option to that Seller.
- Your Interest rate. Adding your interest rate to the offer is actually a “protection” for you, the Buyer. The offer will be contingent upon your loan being approved for the amount on your pre-approval letter and at the interest rate you were quoted when you were pre-approved. Until your lender actually “locks” in your rate, that amount can change. Should the interest rate go up drastically while you are looking for a home and the lender be unable to provide you with the interest rate on the offer, you will have the option to provide that information to the Seller and nullify the contract.
- Inspection period. The inspection period, also known as your Due-Diligence Period, is the time period you request to inspect the home and make sure you are satisfied with the condition. There are different types of inspections, we will discuss the two most common. There is an “over all inspector” who will go over the home and let you know if there are any issues that may need to be further inspected by a Licensed Technician, such as a Licensed Roofer or AC Technician etc. Speaking of Licensed Technicians, that is the second choice you should consider. A more “in-depth” inspection would be having a Licensed Roofer, Licensed AC & Heat Technician, License Plumber, Licensed Electrician and a Structural Engineer inspect the home you want to purchase. We have a list of Inspectors that can do these inspections for you and provide you with any issues that are found and actual quotes for any repairs that may be needed. We must complete all inspections during the agreed upon “Inspection Period” and have any request(s) for repairs, notifications that we are nullifying the contract due to the conditions discovered, or notice that we are ready to proceed to act of sale, sent over to the Seller’s agent before it expires. Should a Buyer ask a Seller to make repairs based on the inspections results, the Seller has the option to make the repairs or reject the request. We will go into more detail regarding the inspection period in a future blog, however if you have any questions about this subject, please feel free to give one of us a call and we will be happy to answer your questions.
- Good Faith Deposit. In the State of Louisiana, it is customary to offer a Good Faith Deposit to let the Seller know that you are a Serious Buyer. The Good Faith deposit is delivered to the Seller’s agent upon acceptance of the offer and is placed in a non-interest bearing account by the Agent’s Brokerage firm. The Good Faith deposit is returned to you at the Act of Sale or if the contract is nullified during the sale process due to legitimate contingency issues, such as, for example, the Buyer is not satisfied with the condition of the home during the inspection process, or the home does not appraise, and the Seller will not lower the home to the appraised value.
- Home Warranty. Depending on the age of the home, and the condition of the home when you viewed it, you may want to ask the Seller to provide a One Year Home Warranty. This Home Warranty is provided by a third party and can be paid for at act of sale by the Sellers if they agree to do so, or by the Buyer (or family member of the Buyer as a gift). There are different types of Home Warranties and we will discuss them with you during the offer process.
- Additional terms: There are many different aspects of the Offer process that I did not cover in this blog. We will go over the purchase agreement in great detail when we are ready to sit down and make an offer. The purpose of this blog is to go over the most important aspects of what you can expect when making an offer. In addition to the items listed above, we will also ask the Seller to provide a clear termite certificate dated within 30 days of the Act of Sale date. We will also ask them to transfer the remainder of the termite contract, if any, to the Buyer. Some other additional terms that may or may not apply include transference of flood insurance, and asking the Seller to have the Parish inspect the septic or Sewage treatment plant and provide a Health Department Letter.
The items stated above, as I mentioned are just some of the things we will discuss during the offer process. Expect the offer process to take up to an hour to two hours, depending on the number of questions you may have.
Once we complete the offer, you will initial all pages and sign the final page. You will also initial all pages of the disclosures and sign the final page indicating that you have read the information the Seller has disclosed to you about the condition of the home and any past issues that are noted on those disclosures. We will send the Seller’s agent a copy of the signed offer, the signed disclosures, a copy of your pre-approval letter and a copy of your good faith deposit. In Louisiana there is an expiration of offer noted on the purchase agreement and the Agent and Sellers are required to respond during that time period for the offer to remain valid. Once the offer is presented to the Seller’s Agent, we wait for a response……